Key issues: Whistleblower bounty program

The first annual report of whistleblower tip data from the Office of the Whistleblower as mandated by the Dodd-Frank Act stated 334 tips were received from August 12, 2011-September 30, 2011. The SEC received whistleblower submissions from individuals in 37 states, as well as from several foreign countries, including China (10) and the United Kingdom (9). The whistleblower data report only reflects seven weeks for fiscal year 2011 because the final rules only became effective August 12.

In response to the new whistleblower program, some companies have taken such actions as:

  • Reinforcing their compliance program so that there are more vigorous investigations.
  • Enhancing the “net” for internal reporting to allow employees better access.
  • Reviewing the code of conduct for anti-retaliation provisions.

A point of significant discussion relating to these rules was whether the SEC would require a whistleblower to report first to the company - before reporting to the SEC. In the end, the final rules don’t require a whistleblower to report to the company first, but they encourage doing so by building in certain incentives. For example:

  • Reporting internally first could increase the size of a reward
  • If the whistleblower reports first to the company, any information derived from the company’s own resulting investigation accrues to the credit of the whistleblower if the company then self-reports the incident to the SEC within 120 days of the internal submission by the whistleblower

The potential for significant bounties could incent more employees to be alert for possible violations, which could mean companies may ultimately have to investigate many more allegations. This directly impacts audit committees, given their mandate to oversee whistleblower hotlines. Management should actively encourage employees to report concerns internally — ideally instead of, but at least before, reporting to the SEC — so the company can address any issues.

Another area of significant discussion was whether individuals that are culpable in the scheme that led to the whistleblowing are eligible for an award. Under the final rules, these culpable whistleblowers are eligible for monetary rewards, but they will not be paid awards that are based on:

  • The monetary sanctions they themselves must pay in the resulting SEC action
  • The monetary sanctions paid by entities whose liability is based substantially on conduct that the whistleblower directed, planned or initiated

This provision is to prevent wrongdoers from benefitting from their own unlawful conduct.

Investigating allegations can be complicated and time-consuming, and the new rules may be particularly challenging for a company that does not have a well-developed and well-organized program in place.


PwC perspective

John Barry
"On May 25, 2011, the SEC released its final rules on the Dodd-Frank whistleblower provisions. The release put to bed questions about whether the Commission would require whistleblowers to report first to the company. While the SEC did not require reporting to the company first, they did build in incentives for the whistleblower to do just that. Reporting internally first gives the company a chance to investigate on its own while still protecting the whistleblower, and their interest in a potential reward."
- John Barry, Leader, Center for Board Governance


Other key issues

Learn what PwC has to say about the Whistleblower bounty program:

Additional information about the Whistleblower Bounty Program: